Overstock.com, Inc. (NASDAQ:OSTK) Q3 2023 Earnings Call Transcript October 26, 2023 8:30 AM ET

Company Participants

Lavesh Hemnani - Head of Investor Relations

Jonathan Johnson - Chief Executive Officer

Adrianne Lee - Chief Financial Officer

Dave Nielsen - President

Conference Call Participants

Tom Forte - D. A. Davidson

Peter Keith - Piper Sandler

Anna Andreeva - Needham and Company

Seth Sigmund - Barclays

Steven Forbes - Guggenheim Partners

Jonathan Matuszewski - Jefferies

Operator

Good day and thank you for standing by. Welcome to the Q3 2023 Overstock.com Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Lavesh Hemnani, Head of Investor Relations. Please go ahead.

Lavesh Hemnani

Thank you. Good morning and welcome to our third quarter 2023 earnings conference call. Joining me on the call today are CEO, Jonathan Johnson; CFO, Adrianne Lee; and President, Dave Nielsen. Today’s discussion and our responses to your questions reflect management's views as of today, October 26th, 2023, and may include forward-looking statements. Actual results could differ materially from such statements. Additional information about factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31, 2022, and in our subsequent filings with the SEC.

During this call, we'll discuss certain non-GAAP financial measures. Our filings with the SEC contain important additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Following management's prepared remarks, we will open the call for questions. A slide presentation with supporting financial data will be available for download on our Investor Relations website after the call had ended. Please review important forward-looking statements disclosure on Slide 2 of that presentation.

With that, let me turn the call over to our CEO, Jonathan Johnson.

Jonathan Johnson

Thank you, Lavesh. And good morning, everybody. Today is an exciting day as it marks the start of something new. We're pleased to share details about our path forward and how we are capturing the many opportunities we see ahead while also addressing areas of the business where we need to see improvements.

This morning, we reported Q3 financial results that included the performance under the Overstock brand through July 31st and performance under the Bed Bath & Beyond brand beginning August 1st. While there were many things in the quarter that we felt good about, including the launch of the new Bed Bath & Beyond and the 6% growth in our active, customer files, we fell short of our revenue goal. We will discuss what steps we are making to improve revenue growth.

Over the last three months, we have accelerated our efforts to build the company with a bigger, brighter, bolder future. On June 28^th, we acquired the Bed Bath & Beyond brand and IP, a brand ranked in the top five most recognizable home brands in the United States, alongside titans like Target, Walmart and Home Depot.

Within hours of closing the deal, we revived the brand in Canada and in just 33 days, we launched the brand in the US under our unique asset light operational model.

I’d like to take a step back to provide insight into how we view the deal and discuss how we intend to monetize it going forward. Just a few years ago, when we first considered acquiring the Bed Bath & Beyond business it would have cost us close to $2 billion. We chose not to pursue a deal at the time and subsequently watched and continued to monitor as it struggled with declining same-store sales and overwhelming debt.

We saw four valuable assets in the business if the right opportunity presented itself. First the number five, most recognizable brand in the home space and as an aside in that same ranking Overstock was number 25; second and over an 100 million person customer file; third, vendor relationships with some of the biggest home category brands in the world; and fourth, valuable intellectual property.

We were thrilled when that opportunity presented itself and we pounced on it. To strengthen the clarity of the economics of this deal we break down this opportunity into two buckets totaling up to approximately $175 million. First, the approximately $25 million paid to the bankruptcy state for the brand and related IP and acquisition-related fees.

And second, approximately $150 million of additional investment to launch the brand we ignite the customer files and expand and create new categories while working to maintain our company's core customers. That $175 million is less than 10% of the cost Bed Bath & Beyond would have been just a few years earlier.

A lot of this $175 million purchase price is included in our future operating plans. This strategic spend is expected to run through our P&L over the next 15 months or so. Rest assured, profitability is and always will be a key metric and tenant of our company noting that we are intentionally and strategically spending more for this time to take advantage of the Bed Bath & Beyond brand and grow our customer file.

Earlier this week, we announced our new corporate name Beyond. This new corporate identity builds on the value of our iconic consumer brand. It also recognizes our ability to transform into more than just a single brand e-commerce retailer. Our goal is over time to transform the company into a house of brands, providing a mix of products and services across categories.

Think of this as a bigger, better, bolder beyond. Today, we provide a broad selection of on-trend furniture and home furnishing products through a single e-commerce website, Bed Bath & Beyond. In due time, we plan to reimagine the Overstock brand with a standalone website that offers what the brand originally was A site selling a broad array of clearance products at remarkable prices.

We plan to begin initial work on this cross category, Overstock branded liquidation-only website with a goal to launch it by the end of 2024. We will work with former, existing and new supplier partners to provide an outlet for clearance merchandise and deal-seeking consumers. We feel strongly that our tribal knowledge and the white space around this business model makes this the right move.

We will not stop there. Taking a discipline approach we are opportunistically and patiently looking at other targets across the consumer space to grow our brand portfolio. Our ability to execute on our Beyond vision is backed by a strong balance sheet. Because we have been careful stewards of capital, we can play offense amid a weak macro backdrop to differentiate ourselves in the marketplace for the long-term.

Our new corporate name was a very thoughtful and strategic choice. It is only been three months since we launched Bed Bath & Beyond in the US. We have learned a great deal as we launched this top five consumer mega brands.

We intend to implement these learnings as we aggressively moved forward. Remember, we are just getting started in the efforts to engage with the customer file we acquired. Our objectives from this acquisition were fourfold; first, on a top five consumer brand within the home category that we acquired at a deep discount; Second, whoever's the brand’s intellectual property to expand our breadth of offerings including launching a registry business, expanding our nation trade business and enhancing supplier relations; third, access and bigger portion of the total addressable market; and fourth, importantly, grow our active customer file.

Growing our customer file is critical to our long-term vision and is the primary metric we are using to measure the initial success of this acquisition. The interaction, we can have with our vast customer file will provide valuable insights into our customers' needs inside and outside of their homes. This will enable us to expand our current financial service offerings and even explore additional service offerings.

We are essentially trying to build a business that can grow through frequent customer touch points, one that allows our operational model to scale and accesses alternate revenue sources, less impacted by economic cycles.

Now for a brief update on some strategic decisions and learnings since we acquired the Bed Bath & Beyond brand. I mentioned earlier, the launch of the Bed Bath & Beyond brand in the US was done in just over a month after closing the deal. Before we launched, we have evaluated whether to run both the Overstock and the Bed Bath & Beyond sites or a single e-commerce website.

The more we studied the options, it became clear to us and to those, we consulted with that running to nearly identical websites was not a viable choice. It would have severely damaged search engine rankings on Google and other search engines and taken several months to complete.

Additionally, it would have created confusion for our supplier partners and required challenging operational workarounds, which would have resulted in negative impact to the customer and delivery experience. Thus, we elected to run a single site.

However, as I noted earlier, we already have plans in place to stand up an Overstock e-commerce site again by the end of next year, in a way, that will differentiate the brands. In terms of learnings, we are gaining knowledge about the purchasing behavior of our newly acquired customers and insights about our legacy Overstock customer base.

We are learning what products and promotional and marketing strategies resonate with each group. We have learned that many new supplier partners are eager to engage in our newly acquired brand and see the importance of growing and improving our relationship with our loyal legacy supplier base. We intend to increase our engagement with our supplier base.

We believe that it's important to protect these partners’ investment in this relationship and leverage their historical knowledge. With the acquisitions of Bed Bath & Beyond brands, we are combining a well,-recognized consumer brand synonymous with home with an advantageous asset light operational model. But we are not alienating our legacy Overstock customer.

Our initial launch strategy was a three-pronged approach. First, drive downloads of our new mobile App. Second, transition as many legacy Overstock customers and legacy Bed Bath & Beyond customers to our new welcome rewards loyalty program. And third, warm up the newly acquired legacy Bed, Bath & Beyond customer email list, a necessary step prior to launching personalized and automated email campaigns.

As a reference, we have more than doubled our customer database with the Bed Bath & Beyond acquisition to over 250 million files. We will spend the next year accelerating CRM efforts with the following focus areas, augmenting our CRM stack, enriching and bringing our customer database up to optimal hygiene; applying predictive logic and using that data to better map and personalize customer journeys; and activating marketing activities, leveraging this database to drive customer acquisition and improved retention.

These moves will allow us to further entrench our team into the connective points, overall, active file size and increase average order and frequency of visits. These moves will allow us to further entrench our team into the connective points overall actified sites and increase frequency of visits. That's important. We also believe these actions can help us drive AOV from under $200 to an aspirational $250 level over time, as we work to reverse any downward furniture trend without slowing down soft goods sales.

We also expect that over time, this will help increase our annual order per active customer. We are laser focused on getting that number closer to two and believe that with the aggressive, but strategic use of the famous Bed Bath & Beyond coupon increased mobile App engagement, and an increased number of people in our welcome rewards loyalty program we will be on the right trajectory.

The actions we have taken are already starting to drive results. Our active customer base grew sequentially to 4.9 million customers at the end of Q3, increasing by nearly 300,000 customers in the quarter. Fourth quarter to-date we are tracking at just under five million customers. Our goal is to add another 150,000 customers by the end of the quarter.

The increase in our customer base enabled us to return to year-over-year order growth for the first time in over two years. The bed bath and kitchen categories, led the improvement in our orders’ performance and furniture remains one of our top categories as we see potential for further upside. We continue to do well in Canada. Our average monthly sales trends are up three times, compared to Q2 and the business is on a solid trajectory to scale.

Our Canada team has been able to drive this growth even without a mobile app or loyalty program, both capabilities, which are on our 2024 product roadmap. We expect Canada to scale faster with these platform additions.

Moving to an update on the Medici Fund, because I assume we have first time listeners, I will give a little background on this. Our company currently has an investment in 16 early startup companies using blockchain technology. Those investments were made years ago. In 2021, after a thorough evaluation of options for the business, we made the decision to give our daily oversight of those investments to a well-qualified venture capital subject matter expert, Pelion Venture Partners.

You can think of this asset as a massive piece of undeveloped real estate at the end of the bus route. In due time, that property would be parcelled up with each parcel yielding varying degrees of returns. Today we remain wildly hopeful that the property value appreciates. While we don't speculate on the future value of these assets, Pelion is doing a great job managing Medici Fund.

As I've consistently said, I'm confident Pelion will nurture and deliver some winners from the early-stage companies in the fund. It just needs some time. As a reminder, we are only in year three of our eight year partnership with Pelion. Our investments in the Medici Fund are an important element of the Beyond investment story. That's said, it’s prudent stewards of shareholder capital. We are always evaluating all the investments on our balance sheet.

President, Dave Nielsen will now share how we plan to approach brand building over the next few months, and dive into some insights about our customers.

Dave Nielsen

Thank you, Jonathan. In the first 60 days, following the Bed Bath & Beyond launch, results largely met internal expectations. That said, we know there are key areas that require improvement. After launching the brand, we quickly went to work to leverage a hundred million plus customer file we acquired. We executed a three-pronged launch.

First as a test, we offered an app exclusive 25% off coupon during August to the marketplace and customer file. We wanted to reward loyalty legacy customers and welcome them to the new Bed Bath. The mobile app sales increased by 55% over Q2 and Q4 continues to track strong.

Second, to convert the most loyal legacy Bed Bath & Beyond customers, we transferred and honored their previous accounts and reward balances to our platform. We then added an additional $25 bonus reward to their accounts, which expired at the end of September and gave them a free one year welcome rewards membership. These actions brought in loyal legacy Bed Bath & Beyond reactivated legacy Overstock customers.

Third, we went through a process of warming up these new potential customer email addresses. We began the warm up in mid-August and only recently finished reaching out to the entire file. With the acquisition our addressable contactable email population has nearly doubled. And today, our daily email campaigns have increased nearly three times, compared to pre-acquisition sense.

The size and scale of the upcoming branding campaign in November will be the largest we have ever done. We are working with a top agency that has a track record of executing large campaigns for top consumer brands. We will be running spots on linear and streaming TV, leveraging out of home media assets. In key traffic areas and partnering with influencers to create a social media buzz with accounts that have an affinity to the home, and especially our brand.

The holidays this year will be an exciting new frontier for us. We're eager to offer our customers’ incredible deals during these key events. Historically, November and December have been significant sales periods for the legacy Bed Bath & Beyond as their assortment leaned heavily into holiday home, entertaining and gift giving product categories.

Our team has a terrific lineup of deals on key brands and we will leverage the brand to serve our customers and capture market share. Our new brand campaign will remind and educate customers across the addressable market that we have an even bigger Beyond assortment for their holiday entertaining needs. We are geared up to deliver a strong holiday season.

Now, I'd like to walk you through some of our learnings after evaluating the first two months of the brand launch. We have separated our customers into three distinct customer files. First, starting with the legacy Overstock customers. These are customers for which we had unique email addresses in our Overstock database.

This group includes some legacy Bed Bath & Beyond customers, who were already in the Overstock database. Second, legacy Bed Bath & Beyond. These are customer accounts that we acquired with the Bed Bath & Beyond transaction that did not exist in the Overstock database. Third, TAM New. This is the most encouraging cohort in our view. These customers are email accounts which did not exist within Overstock or Bed Bath & Beyond databases.

We include this customer as part of the roughly $440 billion total, addressable market and hence the name TAM New. Let me just discuss how each of these customer files behaved during August and September, the 60-day period in Q3 since launching the brand in the US. The legacy Overstock group was roughly two-thirds or over 900,000 of our $1.4 million total order volume during August and September.

Furniture and rugs remained among the top product categories. Our messaging around the bed bath and kitchen product categories may have overindexed in communication to this customer file. Considering that, I can certainly see how some may think we have confused this core customer group. However, it is way too early to conclude that the legacy Overstock customer left us.

We are barely three months into the launch and our upcoming brand campaign is focused on ensuring the brand assortment messaging is clear. The legacy Bed, Bath & Beyond customer file accounted for 10% or over 140,000 orders. We expected this group to account for the lowest percent of our orders as we spent much of the quarter warming up the email list for this group.

This group will grow as we roll out the brand campaign in early November. It's encouraging to see that furniture was among their top categories. Within the TAM new customer file, furniture was a bigger share of orders compared to the legacy Overstock. They accounted for 23% or nearly 325,000 orders during the period. And this is important, they had the highest AUR among the three groups.

These customers are total home customers. This group is finding us through search engines with the Bed Bath & Beyond brand driving conversion. This is not surprising to us as we acquired a top five home furnishings brand in the US home furnishings market. I would like to make a point on profitability through the lens of contribution margin, meaning gross, profit less marketing expenses.

Through the first 60 days, legacy Overstock and TAM New customer files have been accretive to contribution margin at nearly similar levels. As expected, the legacy Bed, Bath & Beyond file was dilutive to contribution margin as we invested in significant mobile app download campaign offers and bonus welcome rewards promotions to drive conversion.

That combined with lower AUR orders wasn't expected headwind to profitability. Remember, we are still in the early stages of our branding launch. We are excited about our future with the brand and we are just getting started.

I will now hand to call the Adrianne to discuss the third quarter 2023 financial results.

Adrianne Lee

Thank you, Dave. I will begin with an overview of our financial performance during the third quarter. Later, I will share our expectations regarding Q4 and the expected future investments around the acquisition of our Bed Bath & Beyond IP. Revenue declined 19% year-over-year in the third quarter. While this is a slight improvement in the year-over-year trend relative to the second quarter, the composition of our top-line results versus our previous performance has changed.

AOV declined 21% with mix of orders skewing to lower AUR categories, following our brand launch. Orders increased 3% returning to growth for the first time in several quarters. Underlying results continue to be influenced by macro factors and weakness across the furniture and home furnishings industry, driven by low consumer engagement in the category, a shift in spending preferences and a weak housing market.

Our mid-quarter update outlined mid-teens decline in year-over-year revenue, which included performance over the Labor Day weekend. In comparison, we ended the quarter with a decline of 19%, mainly driven by the timing of our customer acquisition strategies. Gross profit was $70 million in the third quarter, a decrease of $37 million versus the prior year.

Gross margin came in at 18.7%, a 461 basis point decrease versus the same period last year. The year-over-year decline was primarily driven by two factors, higher discounting and promotional activity related to customer acquisition strategies like the app exclusives 25% off coupon and freight cost deleverage driven by orders mixing into lower AUR categories.

We expect this dynamic to continue throughout Q4 as we deploy targeted offers to support holiday shopping focused on new customer acquisition and reengagement efforts.

G&A and tech expenses increased $5 million year-over-year, which includes short-term discrete costs associated with the Bed Bath & Beyond brand integration efforts. As I mentioned last quarter, we expected to incur acquisition-related costs. Adjusting for these costs our fixed G&A and tech costs continue to track at around $50 million per quarter.

As a percentage of revenue, G&A and tech expense was 14.3% in the third quarter, an increase of 380 basis points compared to the third quarter of 2022. This deleverage was mainly driven by lower revenue compared to last year.

In the third quarter, we delivered an adjusted EBITDA loss of $24 million, a decrease of $39 million versus a year ago. On a margin basis, this was an almost 1,000 basis point decline year-over-year, approximately 50% of the adjusted EBITDA margin decline was driven by gross margin pressure, resulting from the customer acquisition strategies referenced earlier.

The balance of the margin decline was associated with fixed cost deleverage on a lower revenue base and higher marketing cost compared to last year. We are purposely investing to grow our active customer file in this unique window.

Our reported GAAP EPS loss of $1.39 was primarily driven by operating losses and a non-cash non-operating expense associated with a change in value of our equity securities and the associated tax impact The change in value of our equity securities reflects our proportionate share of the Medici Ventures Fund, including a reduction in the valuation of our of our indirect investment of tZERO.

Excluding the impact of equity securities, we reported adjusted diluted loss per share of $0.61, a decrease of $0.74 versus 2022 reflecting higher pre-tax losses, compared to the prior year. Our balance sheet remains strong. On a net basis, our cash balance excluding long-term debt was $291 million. This level of cash continues to provide a strong foundation for us to invest in efforts to grow our active customer file.

Now, moving to an update on our KPIs. Our active customer base was $4.9 million, a decrease of 15% year-over-year. We measure active customers on a trailing 12 month basis. This decline in active customers was driven by two key factors; a shift and spending preferences as consumers continue to spend on experiences and services; and second, a weak macro environment and housing environment.

Importantly, since launching Bed Bath & Beyond, we have grown active customers by 7% or nearly 300,000 customers. Increasing our active customer file is a key measure of success for this transaction. Orders per active customer were 1.48 in the third quarter. A decrease of about 9% versus last year and a decrease sequentially.

In the near term, we expect frequency to remain lower than our targets as new customer orders become a larger portion of our mix of total orders. We anticipate that over time brand awareness, growing mobile app adoption and hands loyalty offerings and higher engagement in the future seasonal periods will help grow order frequency.

Average order value declined 21% year-over-year to $192, mainly driven by a pronounced order mix to lower AUR categories. While category mix shift was the primary driver of the change we continue to see evidence of trade down across our categories. Looking ahead, we will continue to offer compelling value to our customers and pass on cost reductions that we receive. The dynamic of mix-driven lower AUR will influence future AOV results.

Post Q4, we anticipate signals of normalization while orders mixing into seasonal higher AUR categories. Orders delivered were $7.3 million for the trailing 12 month period. This is a decrease of 22% compared to the prior year and largely driven by a weaker macro and lower consumer spending compared to last year.

To close, I will provide our thoughts on the fourth quarter, including color on our expected future investments around the acquisition. For Q4, we expect revenue to improve modestly versus our 3Q year-over-year decline. We expect active customers to increase to around 5.2 million range supporting year-over-year growth, offset by lower AOV.

We are planning for gross margin in line with 3Q. As a reminder, 4Q is typically a lower gross margin quarter due to elevated holiday promotional activity. Our new brand campaign is expected to drive higher marketing expense as a percent of revenue and absolute dollars versus 3Q.

As we look forward over the next 12 months or so, we expect to spend a balance of our $175 million investment, weighted more heavily over the next three quarters.

With that, back to you Jonathan.

Jonathan Johnson

Thank you, Adrianne. Today, we covered a lot. We hope to leave you with the following takeaways: Our rebranding is still in the early days. We are just getting started. Our upcoming top of funnel brand. campaign is going to amplify our message as a leading online retailer of all things home. We are acquiring customers. The most important early metric of the initial success for this acquisition.

Importantly, we are extending our reach within the total addressable market. Over the next five years, we plan to exceed 10 million active customers. Again, we covered a lot and provided more color and guidance than we usually do. In that spirit, I want to remind you that we are here today to discuss our financial results and the progress we made integrating Bed Bath & Beyond. We appreciate you keeping your questions focused on these topics.

With that GG, let's take some questions.

Question-And-Answer Session

Operator

[Operator Instructions]

Our first question comes from the line of Tom Forte from D.A. Davidson.

Tom Forte

Great. So, thanks Jonathan and team for taking my question. I'll just limit myself to one. No need for a follow-up and I'll focus on what you advice to focus on. So Jonathan, taking as a whole, what one or two things met or exceeded your expectations on the brand transition and what one or two things fell short of your internal expectations.

Jonathan Johnson

Yeah, Tom. Thanks. It's an insightful question. I think we did better than expected on our mobile app downloads. The number of customers that downloaded the mobile app was great and their usage is great. We saw their usage early in that campaign in August and then of course, late as the campaign ended. I would also say on the other side, it's taking longer to warm up the email file than we hoped.

We knew it would take some time as we made - wanted to make sure that we didn't have any email trapped in spam filters. But at this point, those pipes are warmed up and we're able to send email to anyone and everyone on the customer file. Dave, would you add maybe a what we like, and one thing that we've wish we’ve done a little better?

Dave Nielsen

I think one of the things we like was when we changed the site that we acquired, this new brand with Blue we saw the power of this brand. We saw customers flocking to these softer categories to the home tech styles, to the kitchen.

That speaks to the power of this brand. We've been making adjustments in our top NAV, in our MODS and our emails to better balance the mix of legacy Overstock and legacy Bed, Bath & Beyond products. And we're finding that balance. But that was probably the item that I saved was, just disappointing. The power of the brand is really strong.

Jonathan Johnson

Yeah, and it's been strong with suppliers. The suppliers that have come to us who reported three years, but couldn't get suppliers that have opened up their full catalog now, where we used to have only a smaller portion really powerful piece of the Bed Bath & Beyond brand. So hope we addressed the question, Tom.

Tom Forte

Yes. Thank you, Jonathan, and thank you Dave.

Dave Nielsen

Yes.

Operator

Thank you. One moment for our next question. Our next question comes on the line of Peter Keith from Piper Sandler.

Peter Keith

Hi, good morning, everyone. Thanks for taking the question. I guess, just as thinking about the first two months of the brand integration, I just want to talk a bit about the revenue trajectory, because you’re running negative mid-teens in early September, and then finished down at 19 for the quarter. It does suggest quite a bit of step-off in the back part of September.

So, why don’t if you could help us understand what caused that slowdown? You pulled back on the marketing and the couponing, and it was that kind of a temporary slowdown.

Jonathan Johnson

Adrianne, do you want to take that one?

Adrianne Lee

Great. Yeah, happy too. Peter, we don't generally discuss kind of our monthly kind of GMS and revenue trends, but I'll tell you a few things. One is, I discussed in my prepared remarks that we had kind of a set of customer acquisition strategy.

So a lot of them monthly cadence was really impacted by when we deployed our customer acquisition strategies, particularly the mobile app versus when we were able to kind of do our email sends for the welcome rewards, folks in the balance of that customer file. And you will just kind of note if we if we put kind of August in September together, very in line with the Q3 trend.

Jonathan Johnson

Yeah. Just to kind of add to that Peter, and it's a great question. There was a lot of early promotional activity in the first month of the launch. And when we put out our mid quarter press release, it was post Labor Day, and Labor Day is a big shopping day. So to see numbers down a little bit after Labor Day, not that surprising, but certainly working to improve that trend right now.

Peter Keith

Okay. Thank you. And then unrelated, but just on the role of Chief Marketing Officer in the company, because you just bring us up to speed. I'm not sure if you've hired anyone or are you looking to hire someone? And it seems like that would be a pretty important role with this rebranding effort. If you are looking for someone, what are some of the characteristics you'd like to find?

Jonathan Johnson

Yeah, so I'll begin the answer and turn it to Dave who's leading that search. We've not yet hired someone. We do have great candidates. And we have great Vice Presidents that will report to the Chief Marketing Officer are currently reporting to Dave because he fills - temporarily fills that role. We want to find a great one. We're taking our time. I think the team we have in place is doing a nice job during the rebrand. But it is a whole that we will need to and are working to fill. Dave?

Dave Nielsen

Yeah. Thanks, Jonathan. From a timing standpoint, this is obviously the best of the CMOs are up to their eyeballs in fourth quarter execution for the holidays. And so, we're talking with them. I've had several phone calls with some top notch candidates. We will start post ground shipping. Time frame will probably start in on real panel interviews with our executive team and evaluating the candidates. I anticipate we will have a candidate in place at the end of January or mid February.

Jonathan Johnson

Yeah. And in the meantime, I'm really excited for our top of funnel marketing campaign that's launching next week even with a sitting CMO, we've done, a really neat job and a good job with this campaign. It's going to be broad and you'll see us far and wide. So thanks for that question, Peter.

Peter Keith

Okay. Thanks so much.

Operator

Thank you. One moment for our next question. Our next question comes on the line of Anna Andreeva from Needham.

Anna Andreeva

Great. Thank you so much and good morning, guys. One question and one follow-up from us. Appreciate you providing us color on how to think about revenues in the fourth quarter. But could you talk about the trend that you are seeing in the business quarter-to-date. Just curious what are you seeing from the core Overstock consumer so far?

And if you feel there is a need to promote even more just wanted to make sure the customers stays with the platform. And then, secondly, as a follow-up to Jonathan, really interesting to hear about the Overstock site coming back as a liquidation site. Just big picture, how do you guys think about ensuring there's no cannibalization between the value Bed Bath and what will be no doubt sharp prices at Overstock.

Jonathan Johnson

Great question. I'll turn to Adrianne to ask – to answer the first one and then we'll go - I'll discuss our thoughts about Overstock as a liquidation site.

Adrianne Lee

Thanks. And so, I think trends continue to kind of perform in line with our expectation and kind of as we discussed with our fourth quarter, we talked about trends, excuse me – the fourth quarter having a very similar year-over-year decline from the third quarter. And that's we feel confident saying that what we're experiencing and that's what we expect.

Jonathan Johnson

Thanks, Adrianne. We are excited about taking Overstock back to its roots, being a clearance liquidation site. And anyone who's been in the clearance and liquidation business like a long time visit Overstock like me have been know that retailers are always trying to avoid channel pollution. They don't want their clearance product next to their current product.

That's why we couldn't be a general retailer and a liquidator at the same time. No one can be. When we stand up, restand up the Overstock site as a clearance site, it will be very different. There will be no similar products. That's how you avoid channel pollution. The pricing will be true clearance liquidation pricing.

There will be some, some hurdles to get over there, but by having none of the similar product on site, we think we can avoid the cannibalization that your question was concerned with. Hope that addresses the questions Anna.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Seth Sigmund from Barclays.

Seth Sigmund

Hey, good morning, everyone. I wanted to talk about the $175 million of investments. Can you frame for us how much has been spent to-date? And then, where do you plan to deploy that? Is that pricing? Is that marketing? Do you need to do more hiring? So I guess that's the first part. And then, you did say that would occur over the next 15 months. Is there a cadence to think about just so that we can appropriately manage expectations? Thank you.

Jonathan Johnson

Yes, that's a great question. And, it's part of the more color that we want to provide. I'll turn to Adrianne to address it and look to Dave to maybe add some color. But, as I noted, we spent about $25 million on the deal between buying it and acquisition-related. We spent some this quarter. You can see that in our results. Adrianne, do you want to talk about kind of the cadence of what's the remainder?

Adrianne Lee

Happy to. Yes, I think that's kind of in total as Jonathan outlined those buckets, let's just say we've spent around $50 million thus far with third quarter and kind of the acquisition activities. I talked about in my prepared remarks that we expect to see this over the next 12 months or so, likely more heavily weighted in the next three quarters.

That's starting with fourth quarter so fourth, first and second. And I would say we're going to deploy kind of those investments opportunistically. Some of them may hit gross margin for discounting and promotional activity. Some will hit sales and marketing as we launch our branding campaign and various other items. And certainly we will continue to be really sharp on our pricing as I said in my remarks as well offering our customers, the best value.

Jonathan Johnson

Dave, you what do you add?

Dave Nielsen

So, on the marketing front, we've got a really exciting brand campaign that's launching here at the 1^st of November, that we're really excited about. That triggers a couple of thoughts. It's about a bigger, better Beyond, which pushes our legacy Overstock product, and our Bed Bath & Beyond product. So, customer understands the wide, the broad, the bigger older assortment that we have.

Second, it features a coupon and I will tell you this single item 20% off coupon, it is money. It is money to this customer. It is a trigger for them. And we are using that to reactivate those customers. And we're really encouraged by what that will do for us. We're also standing up. Jonathan, mentioned this our wedding registry, our emerging trade business.

These are areas with this brand. We have real permissions to go grab market share. And so we're spending some money in those areas as well.

Jonathan Johnson

And Seth, I just know you asked about hiring. Yes, we've done some incremental hiring, particularly around standing up the registry and some other things. I don't think of hiring is being in that bucket. When we talk about that approximately $150 million of additional investment it's to launch the brand, it’s to reignite the customer file and it’s to expand and create new categories. So it's more marketing. It's not the, it's not the kind of G&A headcount piece. We're always careful hiring there. We hire when we need and there's a few we need. And so, we've done that. And we're moving forward.

Seth Sigmund

Okay, great. I'll just ask a related follow-up. In the past you've targeted, I think that mid-single-digit type of EBITDA margin. Is that still the expectation? And then, if so, is that really a feeling that investments are going to roll off at some point? Or is it more about driving incremental sales, incremental volume to ultimately leverage the fixed cost in the business?

Jonathan Johnson

So, let me talk first to the mid-single-digits. As I've noted before, we are taking a - purposefully taking a pause, as we – for the next few quarters and I think as Adrianne guided to Q4, we're going to continue to spend during this unique time to grow this customer file. Growing this customer file is really important, it will help us grow top-line. It will help us have information about the customers we can use as we think about how we live up to the promise of our new corporate name Beyond, and expand elsewhere.

So, the goal is to grow the customer file. So the top-line grows and that's how we get back to mid-single-digits after this. And that's why we're spending marketing this additional investment that we're making now is really to increase the customer file.

Seth Sigmund

Okay. Great. Thanks so much. And good luck ahead.

Jonathan Johnson

Thanks Seth.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Steven Forbes from Guggenheim Partners.

Steven Forbes

Good morning, everyone. Jonathan maybe just a follow-up on the last question from Seth. Obviously, he asked that customer growth is a key focus. But I was just curious, if you could maybe expand on how you're thinking about the importance of repeat behavior over the next 12 months? And how that sort of is part of the ROI threshold you're spending against today?

Jonathan Johnson

Yeah, for sure. I mentioned in my in my prepared remarks, improving our CRM capabilities, I think that lets us personalize and send our messages in a meaningful way for repeat. But Dave, do you want to talk about how repeat is so important, because we acquire through a buy versus earn. It's not what we are going to be doing.

Dave Nielsen

Yeah. The first the first step, Steve in our branding launch was acquiring mobile app customers and getting them to download that mobile app. That customer is our - one of our most valuable customers. They have highest average order size. They have by far the highest repeat rate. They are the least expensive for us to communicate with. Send offers to and drive business with.

So we'll continue staying focused on that group. Our mobile - total mobile percent of the business was the largest it's ever been this quarter. We're seeing real success there and we're counting on that mobile app and experiential work that we're doing on our website to improve that funnel shopping experience. But that mobile app is where we are placing the majority of our of our retention efforts.

Jonathan Johnson

When you're looking at how we started our brand campaign, our start this rebranding launch. It was mobile app and welcome rewards loyalty program. Those have the highest repeat rates. That's what we're trying to drive the customer by showing the customer the value of those two programs.

Steven Forbes

Thank you. And then just maybe just a quick follow up. I think Adrianne mentioned $5.2 million active customers by year end. Can you guys spend some time in the call talking about the three customer groups? And any way to frame how you think those three groups are as a percentage of the customer base by year end or how you're sort of expecting that to evolve here?

Jonathan Johnson

Steven, it’s hard to give exact numbers. I'll tell you the group I expect to grow the most, and that's the legacy Bed Bath & Beyond customer, because during that first two months of the launch, we were still warming up that massive email file that we purchased. And when I say warming up, it's really keeping them at all of our other customers out of spam filters, by doing this in a very measured, and programmatic way.

That's now - those files are warmed up. That's a group we can talk to in the total. So that's should, that should be the group that’s percentage increases the most. Dave?

Dave Nielsen

I think, that's right, Jonathan. And the second group would be that TAM New group. And what's encouraging about that, I just - I have to go back to this. Again, I mentioned it in the remarks. This group had the highest average order size and they have found us in the initial stages of the brand launch. They found this through searching on Google. We have not had the brand campaign.

The national brand campaigns that are going to be launching here in the coming days. So that group is very encouraging to us because as they grow, that will grow that legacy Overstock business as well. They were very high in furniture ranking. And you'll see that on the on the schedules that we've provided after the call. We've laid that out. So you can see the top product categories and performance based on each of those segments, I talked about.

Jonathan Johnson

Steven. Thanks for those questions.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Jonathan Matuszewski from Jefferies.

Jonathan Matuszewski

Hey, good morning and thanks for taking my question. My first one is a follow-up on the financial recipe after this initial period of ad spend and discounting. I think the last plan you communicated was returning to kind of that pre-deal financial recipe or something close to it by the end of 2024. It looks like the Streets modeling, gross margins shy of that 22% range and negative margins versus positive.

A lot changed obviously over the last couple of months in terms of rates in housing. So just curious is that plan still intact? And if so, what's the biggest disconnect you see with the Street’s number in terms of the second half of next year? Thanks.

Jonathan Johnson

Adrianne, do you want to answer to Jonathan’s question, please?

Adrianne Lee

Sure. Happy to. I do think, Jonathan, I know that probably expectations are a bit across the board and right now we really haven't given any 2024 guidance or thoughts. I think our general goal is we think our business can operate within the parameters of the recipe card. And that's kind of our north star by which we will run the business and perform post these acquisition activities.

But we haven't given the timeline. In fact, today, I think is the first time we talked about this 12 to 15 months investment period of about $175 million.

Jonathan Johnson

Yeah. Jonathan, I'll just noted in our prepared remarks, we talked about the importance of growing the active customer file. We're seeing great success on that. We talked about our goals of growing AOV. I think fourth quarter AOV tends to always be a little lower because of giftables. But with our marketing campaign and then moving into 2024, we think we can take a aspirationally looking to take AOV back to where it's been in the past.

And then the other thing I mentioned is, we have a goal of increasing that average orders per customer which, runs kind of the one, five area - 1.5 area. The goal is to get that to two overtime and we are laser focused on working that. I don't think that happens in 2024. But over time those are the three metrics that we’re working on as we think those will drive top-line and bottom-line.

Jonathan Matuszewski

That's helpful. And just a quick follow-up question on kind of going back to your roots with the clearance liquidation site. Any kind of big picture dots in terms of how that'll influence the P&L in terms of average order value, or order frequency or gross margins, any additional tech spends related to setting that up? Thanks so much.

Jonathan Johnson

Yeah. So let me give some initial thoughts and turn to Dave. It will be a different site and probably it’s too early to comment on what AOV looks like, it may look more like the historical AOV we had. We were a general retailer, because there will be product on there. It is very different than what we're selling today. As I noted, we intend for that to be a general cross category Overstock branded liquidation site.

And so, I don't think modeling it as a furniture or home furnishing site is the right thing to do. We think we can do this in an asset light way. There will maybe some additional tech spend, but not very much. We think our systems are evolving to get there, so that we can run multiple sites well for the cost that we have it. Dave, anything else you would add?

Dave Nielsen

No, I think you covered it. It's all about the mix and that depends on the Overstock at the time.

Jonathan Johnson

Yeah. One thing about the liquidation business is, you can't predict what you're going to be selling, it’s because the vendors couldn't predict. They couldn't predict what they are overbuying.

Operator

Thank you. I would now like to turn the conference back over to Jonathan Johnson for closing remarks.

Jonathan Johnson

Thank you Gigi, and thanks for everyone who joined the call. I appreciate your time. I appreciate your interest. I love to say and I really believe that at the company, the best is yet to come. I think with our new name, we intend to live up to the promise of being bigger, better, bolder, Beyond. Thank you for your ownership in our company. I wish you well as we enter the upcoming holiday season. And we look forward to speaking to you - speaking with you in the New Year.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect